With this initiative the government plans to unearth all the higher denomination currency out of the system, and put a control on the corruption and flow of black money.
Although the decision is in favor of the nation but it might affect individuals and businessmen especially small time traders, grocery shops etc. who transact in hard cash only. Whereas shops and showrooms that accept debit/credit cards are expected to witness a spike in their sales.
Mr Modi also stated that land purchase and real estate are two of the most dominant sectors of the Indian economy. This announcement is expected to have a ripple effect on the gold and real estate industry which are major physical investment instruments for black money hoarding. People will start having more trust on the jewelry industry than currency and the demand for pure gold will increase.
Real Estate India majorly runs on cash transactions from people who pile up their undeclared money and invest it in property in India. It is a popular mode of parking idle and unaccounted money and a huge number of real estate transactions in India are either not reported or under-reported in order to avoid property transaction taxes.
In many of the big cities or metros it has been observed that the initial transactions are through proper banking channels but when it is time to resale, the seller often accepts hard cash in order to save on the capital gains tax. For the buyer also, cash transaction is more convenient since they report a lesser value at the registration office and thus save on the stamp duty charges.
Experts feel this announcement will initially lead to a crash of real estate industry. The crash will happen gradually when the people will start feeling the pressure and will be forced to sell their properties at a lower price due to a reduction in the potential buyers. However it will recover quickly as in property market, unlike gold industry there isn’t any index price and it is determined by demand-supply balance of the market.
The housing prices will come down but that too will help in the revival of demand in the dampening residential realty. This step has been welcomed by many of the big time real estate players of the country. Terming it as signs of a maturing economy, this initiative will help in the institutionalization of real estate India.
Organized builders and listed companies will not get a hit as since last few years land buying was being done via proper banking channels and hence they would be on a gaining end. Most of the property projects or land buying in primary sector is being done through bank finance. The number of housing units is publically known and the builders in India will not take the risk to sell some units in white and some in black so the element of black money is absent.
This decision will adversely impact the secondary market where the ratio of legal to black money- 60:40 are considered to be normal. The unorganized builders in India and the resale property industry will feel the pinch since most the land purchasing was being done in cash. It will hit the overall sentiments of secondary market which is expected to stop the use of cash and remain silent for a few years resulting in a considerable drop in property prices.
This tremendous step was required to bring transparency in the Indian Real estate industry which will have far-reaching and positive effects on the whole.
Thus, this fantastic and bold decision can be termed as the government’s biggest Surgical Strike till date. Or we can say it is just the beginning of a better future…
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